CALPERS and CALSTRS: What’s Up There?

In today’s environment of zero interest, how much of a return do you think you can safely make? 1/2 of a percent? 3/4 of a percent? 1 or maybe 2%? Well, the biggest pension fund in the land, CALPERS, after earning 4.6% annually on their investments over the past decade, feel that they can plan on earning 7%! They have recently lowered their “target” return from 7.5% all the way down to 7! But hey, never mind the fact that their average return over the past ten years has been 4.6%, they can make 7, no sweat! And oh by the way, CALSTRS is still claiming they can make 7.5%!

It is my contention that they cannot safely make these types of returns. What if the lofty 19,900 Dow backs off to 16 or 17 thousand? How will a 10 or 20% decline in stocks affect CALPERS’ 4.6% returns?

Anyone depending on their CALPERS or CALSTRS pension for the next twenty to thirty years needs to be aware that the numbers don’t add up. The only way out of the future pension shortfall that is inevitable is bailout via government money printing. And that can only mean one thing, my friend….inflation, big time! So even though the $8,000 or whatever per month might still reach your bank account, a gallon of gas might cost twenty dollars! With thirty year US treasury bonds yielding about three percent right now, I can’t see how CAPLPERS can safely earn 7% on their money safely, which is what they need to do to stay solvent.